5 tax changes affecting small businesses in April 2016
As well as the change to the way dividends are handled - which is sufficiently importanrt we're going to deal with it separately - there are 5 changes which small businesses and traders using self assessment may need to be aware of. We've summarised them here - please contact us or your accountant/bookkeeper if you need more detail.
The taxation of savings income will change significantly from 6 April 2016, when all interest paid by banks, building societies and other deposit takers will be paid without deduction of income tax (clause 4). This deduction is replaced with a "Personal Savings Allowance" - a tax free allowance on the first £1000 (£500 for higher rate tax payers) of interest from savings (not dividends). Additional rate taxpayers won’t have a personal savings allowance so will be liable to income tax at 45% on all interest they receive. That tax liability will be payable through their self-assessment, or deducted through the PAYE code. Have a look at the detail here.
The wear and tear allowance allows landlords to deduct from their profits an amount equivalent to 10% of the rental income received in respect of fully furnished residential properties. The renewals allowance allows any landlord to claim a deduction for the cost of replacing equipment used in the property business. Both of these allowances are to be removed for property businesses. Instead, landlords will be able to claim a deduction for the full cost of replacing equipment and furnishings (not fixtures) provided for the use of tenants in residential properties. This deduction won’t apply to properties that qualify as furnished holiday accommodation, as capital allowances can be claimed for items used in those properties. The deduction also won’t apply where rent-a-room relief is claimed. Read more here.
Trivial benefits in kind:
This Bill includes a tax and NIC exemption for benefits in kind valued at less than £50 per employee. The benefit must not be acash voucher or be provided as part of a salary sacrifice scheme. Where the employer is a close company, and the person who receives the benefit is an officer of that company, or a family member of an officer of the company, the value of the tax free trivial benefits are capped at £300 per tax year. There is no limit on the number of times in a year a trivial benefit can be provided to other employees. Read more here.
Travel & subsistence:
Where workers who are engaged through an agency or other intermediary and are subject to supervision, direction or control in the manner they do their work, they won’t be able to receive tax-free travelling expenses, or the associated subsistence costs (i.e. lunch). This will affect the amount of expenses that agencies and umbrella companies can pay to the individuals they hire out to clients. Individuals who work through their own personal service companies (PCS), can also lose their tax-free travel, but only where their work for the client would be subject to IR35. The IR35 rules are under review, but are not changed by this draft Bill. Read more here.
Energy saving materials:
Currently the installation of energy saving materials, such as solar panels, is subject to VAT at the reduced rate of 5%. The use of this reduced rate was challenged at the European Court of Justice. As a result, the reduced rate is withdrawn for the installation of solar panels, wind and water turbines with effect from 1 August 2016. However, the reduced rate will be retained in limited circumstances for the installation of other types of energy saving materials such as cavity wall insulation. Businesses that install energy saving materials will require guidance concerning the new VAT rules, as they are not straight forward. See the comments from HMRC here.
As always, if we can help you in any way, please get in touch with us. We're always happy to help when we can.